Belgium has achieved a record-breaking €21.9 billion ($23.65 billion) from savers in a bond sale aimed at competing with bank deposits. This substantial success reflects the growing popularity of government debt as discontent grows with banks failing to keep pace with rising interest rates.
The bond sale, launched on August 24, was designed to exert pressure on banks to raise deposit rates. It represents the largest funding drive from households in Belgium's history and is likely Europe's most extensive retail bond sale, as stated by the country's debt agency.
This sum is equivalent to approximately 5 percent of Belgian deposits, surpassing the €5.7 billion raised from savers during the peak of the eurozone debt crisis in 2011 and exceeding the €18 billion raised by Italy from savers earlier this year.
European banks, flush with cash, have been resistant to increasing savings rates, while market interest rates have surged amid central banks' efforts to combat inflation. This has led to withdrawals by households in search of better returns.
As a result, government bonds targeting savers have become a popular alternative. Italy and Portugal have both shifted significant portions of their funding programs to households this year.
The strong demand for the bond sale sends a clear message to banks, according to Belgian Finance Minister Vincent Van Peteghem. Savers are signaling their expectations for higher returns than what banks currently offer on savings accounts. They seek at least the same level of respect that banks have for their shareholders.
Belgium's one-year bond offers an interest rate of 3.3 percent, surpassing the 2.5 percent, and often lower, rates on savings accounts. However, despite the high demand for the bond, the country's largest banks have yet to raise the rates on their savings accounts.
While this bond sale was successful, it remains to be seen if it will prompt larger banks to raise savings account rates. If not, Belgium may explore additional measures, including issuing another bond in December.
The government has also introduced a bill, pending approval, to reduce the withholding tax on the bond to 15 percent, making it more attractive compared to other Belgian retail bonds, which face a 30 percent withholding tax.
Belgium's debt agency noted that the large size of the bond sale would reduce outstanding short-term debt by over €10 billion in 2023, cut longer-debt issuance by more than €2 billion, and increase the cash reserve position by approximately €9 billion.
By fLEXI tEAM